Budgeting, Control, and Evaluation of Financial Management

This report provides a comprehensive analysis of financial management, focusing on budgeting, implementation, monitoring, and evaluation. It includes tasks related to planning financial management approaches, implementing these approaches, monitoring and controlling finances, and reviewing and evaluating financial management processes. The report covers aspects such as expense allocation policies, training requirements, contingency planning, budget variance analysis, and key financial ratios like average debtor days, creditor days, and stock turnover. Recommendations are provided for improving financial performance, along with calculations for required units and variable costs. Additionally, the report addresses GST liability and includes an action plan for financial improvements, touching upon accounting principles, cash flow management, ledger maintenance, and financial statement preparation, including profit and loss statements. The Big Red Bicycle company serves as a case study throughout the assignment.

MANAGE BUDGETS AND FINANCIAL PLAN
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Table of Contents
Assignment 1: Plan financial management approaches...................................................................4
Task A..............................................................................................................................................4
Expenses Allocation.....................................................................................................................5
A policy of expense reimbursement.............................................................................................5
The policy of Petty Cash..............................................................................................................5
Task B..............................................................................................................................................5
Requirement of training...............................................................................................................5
Assignment 2 Implement financial management approaches.........................................................6
Task A..............................................................................................................................................6
Task B..............................................................................................................................................7
Assignment 3: Monitor and control finance....................................................................................9
Task A..............................................................................................................................................9
Task B............................................................................................................................................11
Contingency Plan.......................................................................................................................11
Variance of Budget....................................................................................................................13
Assignment 4: Review and evaluate financial management processes.........................................14
Task A............................................................................................................................................14
1. The Average Debtor days......................................................................................................14
2. The Average Creditor days....................................................................................................14
3. The Average Stock Turnover.................................................................................................14
Recommendation.......................................................................................................................14
Task B............................................................................................................................................15
1. Calculation for required units................................................................................................15
2. Calculation of variable costs..................................................................................................15
Recommendation.......................................................................................................................16
Task C............................................................................................................................................16
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GST Liability.............................................................................................................................16
Task D............................................................................................................................................17
Action Plan.................................................................................................................................17
Task E............................................................................................................................................17
Accounting Principle..................................................................................................................17
Cash Flow..................................................................................................................................17
Ledger and financial statement..................................................................................................18
Profit and loss statement............................................................................................................18
References......................................................................................................................................19
Appendix 1: Budgeted Value.........................................................................................................20
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Assignment 1: Plan financial management approaches
Task A
Budgeting is a long-term planning procedure that helps in estimating the value of income and
expenditure that could be incurred in a business project in the future. Most of the companies
generally formulate various types of the monetary plan according to the policy that makes the
income and expenses on project accordingly to facilitate the budgeted project. The budget helps
in forecasting the sales and demand for a project in a market. An importance of budget is stated
below
1. It helps the company management in performing, controlling and reviewing the
expenditure and income
2. By making comparison of the result of actual expenditure with budgeted results would
help in ensuring the performance of a plan
3. It helps in taking an action regarding the disparity that occurs from the action plan and
expenses of budget
When the above-mentioned importance are followed for achieving the target of a company, then,
the estimated prepared master budget of Big Red Bicycle could be said to be accurate,
understandable, achievable and fair (Newberry, 2015).
As per the master budget of Big Red Bicycle, the sales in a budget of each quarter are shown as
fixed to $ 750000. However, in new project, the budgeted sales at quarter 2 has been mentioned
as $ 1000000. Another quarter is mentioned to be 30 percent less than compared to quarter 2
which indicates the Quarter 1, 3 and 4 to be sales forecasting of $ 70000 each. As mentioned in a
scenario that sales of a new project decrease due to the economic downturn. Therefore sales of a
budget could be poor.
The direct wages are deducted from the sales in each quarter that results to $ 50000 as a fixed
amount. After deducting the cost of goods sold from sales in each quarter remains $ 1000000 as
mentioned to be fixed. However, commission on a percentage of sales is the shown to increase
by 2 or 2.5 percent of sales. According to the changes in commission on sales forecast the
changes in sales quarter 1, 3 and 4 is $ 75000, whereas quarter 2 incur the changes in the
commission of $ 25000.
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Hence, the gross profit incurred by Big Red Bicycle manufacturer ltd in a financial year
= $ (532500 + 852000 + 532500 + 532500)
= $ 2422500
According to the scenario all other expenses are remained constant, therefore a net profit earned
by Big Red Bicycle = $ (2422500 - 1401500)
= $ 1021000.
It could be assumed from the above calculation, that new projection of budget is drawn, accurate
and correct for achieving the target by Big Red Bicycle of $ 1000000. The new budgeted project
is achievable and fair because the incurred net profit is $ 1021000 that is higher than the target
net profit.
Expenses Allocation
A policy of expense reimbursement
The reimbursement policy is reasonable for the operation of the business by Big Red Bicycle.
The expenses which would not be reimbursed by staff are mentioned specifically. A form of
expense reimbursement should be submitted with an attachment of relevant documents.
The policy of Petty Cash
This policy tracks the expenses incurred under the petty cash category that could be used for
funding the requirement of small business.
Task B
Requirement of training
A team member, Bill Goodale needed to track the expenses of petty cash over a financial year.
Bill requires learning about the procedure of petty cash maintenance that would help in preparing
and developing a spreadsheet.
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Contingency plan
Company Name: Big Red Bicycle
Plan developer:
Name:
Position:
Risk identified: Risk of minimising of targeted net profit before tax
Strategies and activities for minimising the risk By when
By whom
Percentage of the sales commission needed
Reduction
Each of the quarter
of sales
Sam Gellar
Maintenance and repair is required to be reduced
On each of the 4
quarter of sales
Charles Pierce
The company requires to reduce the telephone bill
In each of the 4
quarter of sales
Holly Burke
Expenses for advertising should be reduced
In each of the 4
quarter of sales
Sam Gellar
Table 1: Contingency Plan
(Source: Created by Author)
Assignment 2 Implement financial management approaches
Task A
An objective that is set up by Big Red Bicycle manufacturer ltd that is measurable in terms of
money is a percentage of increase and decrease in profit, the percentage of loss incurred in a
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specified period and the amount of profit and loss. Every organisation is required to set a
financial objective for the following reason
1. It helps a company in collecting funds in maximum quantity
2. It operates in fixation of appropriate structure of capital
3. Helps in determining the project that should be invested on by company
4. It helps in activities of the business operation
5. It acts as a base for controlling the issues of finance
6. It boosts the utilisation of finance accurately
7. It helps in eliminating the issues that could be incurred in future from project investment
8. It acts as a link between financial decision making and its concerned investment
The financial objectives of Big Red Bicycle are as follows
1. To reduce expenses
2. To achieve the targeted net profit of $ 1000000 before tax
3. To compensate the reduction in sales which has occurred due to the economic downfall
A master budget of Big Red Bicycle Ltd identifies the conclusion that the total expenses and a
gross profit of a company in each of the four quarters are similar. However, a percentage of
commission is required to reduce in comparison to the amount of sales budget in each quarter. In
the projected budget of a company the sales amount if decreased due to a downfall in economic.
The master budget highlights a direct wage to be fixed for each year. The amount of expenses on
salaries and wages according to master budget is highlighted as $ 125000 per quarter. However,
in the budget of projection, there is an increase in the salary and wages expenditure due to an
inflation and time value. It is assumed that if there would be an increase in wages expenditure
then, a company could not achieve targeted Net profit before tax of $ 1000000. Big Red Bicycle
ltd would then require reducing the value of other expenses such as repair and maintenance, legal
fees and offices supplies by reducing late payment and wastage of resource.
Task B
To control the expenses and track the actual expenditure, Bills Goodale require to prepare the
following spreadsheet
Big Red Bicycle Pty
Ltd
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Project Expense Control
Final year Final year Q1 Q2 Q3 Q4
Expenses
General & administrative
expenses
Accounting fees 20000 5000 5000 5000 5000
Legal fees 4600 1150 1150 1150 1150
Bank charges 400 100 100 100 100
Office supplies 4600 1150 1150 1150 1150
Postage and printings 400 100 100 100 100
Dues and subscription 480 120 120 120 120
Telephone [phone] 2000 2000
Repairs and maintenance 40000 10000 10000 10000 10000
Payroll tax 24800 6200 6200 6200
Marketing Expenses
Advertisement 100000 25000 25000 25000 25000
Employment expenses
Superannuation 44800 11200 11200 11200 11200
Wages and salaries 540000
13500
0
13500
0
13500
0
13500
0
Staff amenities 20000 5000 5000 5000 5000
Occupancy costs
Electricity 40000 10000 10000 10000 10000
Insurance 140000 35000 35000 35000 35000
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Rate 80000 20000 20000 20000 20000
Rents 160000 40000 40000 40000 40000
Water 30000 7500 7500 7500 7500
Waste removal 48000 12000 12000 12000 12000
Travel expenses 10000 2500 2500 2500 2500
Accommodation expenses 25000 5000 5000 5000 5000
Employees own meal 10000 2500 2500 2500 2500
Miscellaneous expenses 12000 3000 3000 3000 3000
Total expenses 1358080
33952
0
33952
0
33952
0
33952
0
Table 2: Control expenses
(Source: Created by Author)
Assignment 3: Monitor and control finance
Task A
A following statement of the budget is prepared from the provided master budget in the
assumption of income and expenditure incurred by Big Red Bicycle in the year 2011 to 2012.
This budget statement is prepared in concern of the objective of a company for achieving a net
profit before tax of $ 1000000.
Big Red Bicycle Ltd
Income and expenditure budget 2011- 2012
Budgeted value
Income FY 2011 - 2012 Q1 Q2 Q3 Q4
Commission (2.5 %) 77500 17500 25000 17500 17500
Direct Wages 220000 55000 55000 55000 55000
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Sales 3100000 700000 1000000 700000 7000000
Total Income 3397500
Expenses
Accounting fees 24000 6000 6000 6000 6000
Legal fees 6000 1500 1500 1500 1500
Bank charges 2000 500 500 500 500
Office Supplies 5000 1250 1250 1250 1250
Postage and printings 4000 1000 1000 1000 1000
Dues and supplies 500 125 125 125 125
Telephone [phone] 5000 5000
Repairs & maintenance 38750 12500 1250 12500 12500
Payroll tax 40000 10000 10000 10000 10000
Advertising 400000 100000 100000 100000 100000
Superannuation 45000 11250 11250 11250 11250
Wages & Salaries 500000 125000 125000 125000 125000
Staff amenities 20000 5000 5000 5000 5000
Electricity 40000 10000 10000 10000 10000
Insurance 100000 25000 25000 25000 25000
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Rates 100000 25000 25000 25000 25000
Rents 200000 50000 50000 50000 50000
Water 30000 7500 7500 7500 7500
Waste removal 50000 12500 12500 12500 12500
Total expenses 1625250
Closing balance 1772250
Table 3: Budgeted value
(Source: Created by Author)
Task B
Contingency Plan
As stated in the contingency plan, some of the under below changes requires to be
implementation in the present plan are stated below
Contingency plan
Company Name: Big Red Bicycle
Plan developer:
Name: Tom Copeland Position: Managing Director
Risk identified: Profit for a financial year is more than 10 % less than budgeted plan
Strategies and activities for minimising the risk
By
when
By
whom
Reducing the expenditure by 5 percent on water supply, raw material, Q2 PR
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electricity, and paper
Increasing the training period by including 4 more days every month Q2 PR
Monitoring properly the impact of training on employees Q3 PR
Expenses for advertising should be reduced Q3 PR
Increasing the relationship between employee and employer Q4 PR
Stopping the system of email which provides warning and monitors the
employee's performance. Stopping the announcement of a commission
to the team of sales
Q4 PR
Reducing direct wages by 50 percent due to the expiry of the contract
with the contractual employees
Q4 PR
Table 4: Contingency Plan
(Source: Created by Author)
Variance of Budget
Calculation of budget variances
Budgeted
($)
Actual
($)
Absolute
variance ($)
Percentage variance
(%)
Sales 3000000
240000
0 -600000 -20
Cost of goods sold 400000 320000 80000 20
Direct Wages 200000 100000 100000 50
Commission 60000 60000 0 0
Gross profit 2340000 192000 420000 17.95
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0
General & administrative
expenses 116500 58250 58250 50
Marketing expenses 200000 200000 0 0
Employment expenses 565000 600000 -35000 -6.19
Occupancy costs 520000 550000 -30000 -5.77
EBIT 938500 511750 426750 45.47
Income tax @25% 234625
127937.
5 106687.5 45.47
Net profit after tax 703875
383812.
5 320062.5 45.47
Table 5: Budget variance
(Source: Created by Author)
Assignment 4: Review and evaluate financial management processes
Task A
The ratio that could be calculated from the given financial information of BRB
1. The Average Debtor days
= Debtors / Average daily Sales
= $ 3625000 * 365 */ 2900000
= 45063 days
2. The Average Creditor days
= Creditors / Average daily purchases
= $ 80000*365 / 1000000
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= 29.2 days
3. The Average Stock Turnover
= Net sales / Average Inventory
= $ 2900000*2 / (100000 + 300000)
= 14.5
Recommendation
Based on the information, policies, and data the following recommendation could be made
1. Reduce the debtor's collection period and practices for management of working capital.
This would help a company in the utilisation of cash at an optimum level and improve the
financial structure for a financial year.
2. The financial management and cash management practices would help a business in
thriving appropriately and utilise the return from the expense to reuse for other instance.
The source used to prepare calculation and recommendation is listed by following
1. Scenario information
2. Financial performance statement
3. Ledger Account
Task B
1. Calculation for required units
Price of each cycle = $ 500
Variable cost per unit = $ 250
Contribution Per unit
Price Per unit - Variable cost
= $ 500 - 250
= $250.
Total fixed cost = $ 1280000
Target profit = $ 1000000
Required total contribution = Fixed cost + targeted profit
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= $ 1280000 + 1000000
= $ 2280000
A required number of units to produce
= $ Total contribution / Price per unit
= $ 2280000 / 250
= $ 9120
2. Calculation of variable costs
Required total contribution = $ 2280000
Capacity of current plant = $ 8000 Units
Contribution required per unit = $2280000 / 800
= $ 285
Price per unit = $ 500
Variable cost per unit = $ 500 - 285
= $ 215
Recommendation
Based on the above calculation it is observed that for achieving the targeted net profit company
is required to increase its capacity of production by 9120 units and reduce the variable cost by $
215. The source used to make the above calculation and recommendations are as follows
1. Information about Cost and price
2. Scenario information
3. Policy of organisation
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Task C
As per ATO's requirement, the record of GST is to be kept by a company from its
commencement to its last transaction for preparing the GST liability statement for the first
quarter of 2012 – 13
GST Liability
GST Cash budget amount ($) July August September
Cash Receipts 2000 1000 1000
Cash Payments 430 520 525
GST Liability 1570 480 475
Table 6: GST Liability
(Source: Created by Author)
Task D
Action Plan
Activity Monitoring Timelines Accountability
Reduce cost of
variables
Expense budget and
report of variance
Quarterly ended Senior Accountant
Management of
Working capital
Reporting the ratio of
working capital
Quarterly ended Senior Accountant
Cash management Cash budget Monthly Senior Accountant
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preparation
Table 7: Action Plan
(Source: Created by Author)
Task E
Accounting Principle
It is an accounting policy which is related to the framework of accounting that helps in keeping
the record of every transaction of the company for every year. The Fc = vet is a principle of
accounting that should be followed by every company for presenting true and fair information in
the statement. The principle of accounting includes the reliability, cost benefits, compatibility,
and relevance.
Cash Flow
It records the transaction of cash inflows and cash outflows that monitors the cash budget. Cash
flow statement helps in estimating the deficit and surplus that could be incurred in the future.
Ledger and financial statement
The statement of the ledger is prepared by following the information of accounting entries and
balances which is provided by a company at the end of a financial year. The statement of profit
and loss, balance sheet and cash flow statement determines the financial position of a company.
Profit and loss statement
It identifies the income and expenses made by a company during the operation of the business
project over a financial year.
17

References
Hartono, G.C. and Utami, S.R., 2016. The Comparison of Sustainable Growth Rate, Firm‟ s
Performance and Value among the firms in Sri Kehati Index and IDX30 Index in Indonesia
Stock Exchange. International Journal of Advanced Research in Management and Social
Sciences, 5(5), pp.68-81.
Nejad, A.E., Niroomand, I. and Kuzgunkaya, O., 2014. Responsive contingency planning in
supply risk management by considering congestion effects. Omega, 48, pp.19-35.
Newberry, S. (2015). Public sector reforms and sovereign debt management: Capital market
development as strategy?. Critical Perspectives on Accounting, 27, 101-117.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research, 31, pp.45-62.
Wiengarten, F., Humphreys, P., Gimenez, C. and McIvor, R., 2016. Risk, risk management
practices, and the success of supply chain integration. International Journal of Production
Economics, 171, pp.361-370.
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Appendix 1: Budgeted Value
Big Red Bicycle Ltd
Income and expenditure budget 2011- 2012
Budgeted value
Income FY 2011 - 2012 Q1 Q2 Q3 Q4
Commission (2.5 %) 77500 17500 25000 17500 17500
Direct Wages 220000 55000 55000 55000 55000
Sales 3100000 700000 1000000 700000 7000000
Total Income 3397500
Expenses
Accounting fees 24000 6000 6000 6000 6000
Legal fees 6000 1500 1500 1500 1500
Bank charges 2000 500 500 500 500
Office Supplies 5000 1250 1250 1250 1250
Postage and printings 4000 1000 1000 1000 1000
Dues and supplies 500 125 125 125 125
Telephone [phone] 5000 5000
Repairs & maintenance 38750 12500 1250 12500 12500
Payroll tax 40000 10000 10000 10000 10000
Advertising 400000 100000 100000 100000 100000
Superannuation 45000 11250 11250 11250 11250
Wages & Salaries 500000 125000 125000 125000 125000
Staff amenities 20000 5000 5000 5000 5000
Electricity 40000 10000 10000 10000 10000
Insurance 100000 25000 25000 25000 25000
Rates 100000 25000 25000 25000 25000
Rents 200000 50000 50000 50000 50000
Water 30000 7500 7500 7500 7500
19

Waste removal 50000 12500 12500 12500 12500
Total expenses 1625250
Closing balance 1772250
(Source: Created by Author)
20